This is the second of six posts culled from notes I wrote in preparation for a talk at Kansas City Design Week (KCDW). Read the first post here and see the slide deck here.
Entrepreneurs Take on Risk
Risk is often measured in an investment of explicit resources: time, people, resources, money, space, and so forth. You can quantify these things. They are tangible. You can capture them in a spreadsheet, calculate in your head exactly how much "runway" these resources might afford you.*
When talking about risk, entrepreneurs are often talking about exposure to potentialloss or downside if you take a particular course of action. These are decisions whose implications could make your business suffer in the short term, or reduce the amount of runway you had planned for in the long term.
An entrepreneur always has a notion of their runway in their mind, whether they care to or not. It can boil down to how much money is in the bank, how much fuel is necessary to keep the business moving.**
Entrepreneurs can’t spend all of their time focused on the downside. You are trying to reach the upside. When incubating and growing a business, the upside can be some grand vision about what outcome your business will have on other people’s lives. Product usage, customer benefit, satisfaction.
To get there, you wager those resources at your disposal, to see if they will materialize. This is a series of bets. Some bets may be table stakes, with a high probability of a small payout. Others are substantially larger risks, by many orders of magnitude.
As an entrepreneur, you are responsible for your business’s long-term probability of success or failure. Every decision you make changes that probability, and you can’t easily peek ahead or simulate exactly what the final outcome is going to be.***
With so much risk, and so many bets that need to be made, it's tempting to focus on technological capabilities—which can be controlled and quantified in some manner—as where entrepreneurs can exert maximum control when formulating their bets. However, in order to reach the upside, you have to focus on the benefits that customers want to derive from a technology. They are not always the same!
Let me illustrate with a scene from a fictional story that may ring true, based on your experience.
Lightbulbs Won't Go Off
Imagine you work at a technology company as a CEO. The head of the R&D department rushes through the door of your office, which has a view overlooking all of Kansas City.
"Bob, you won't believe it." She waves a light bulb at you. "One of our researchers was able to invent a new type of lighting that can last for twenty-five years per bulb."
Your jaw drops, and the calculator begins whirring in your head. "Betty, that's fantastic. We're going to have such a big impact on the market with this new technology. How soon can we get this into production? How long does it take to produce these things at volume?"
Betty lets out a long, slow breath. "There's something I need to tell you, though."
"What's that?" Your head is floating in the clouds. You can already imagine this completely disrupting the lighting market. Your competitors are going to rue the day they tried to squeeze you out.
"The cost of materials and production for these lightbulbs is going to be twenty-five times the cost of any other lightbulb out there."
You pause. "Oh, I wouldn't worry about that too much right now. When we get it out there and our competitors find out what we've done, we'll know."
Have you ever been in a situation like this, where the technology capability drives all of the business considerations? I have. And as a designer, it's my obligation to say the following: "For who are you creating this product?"
Design makes you think about the WHO. To quote Bill Aulet,
"Building stuff does not make you a startup… For the entrepreneur, stop obsessing about your MVP. Your first question, before HOW and WHAT, has to be 'FOR WHOM?'"
As a designer, I want to understand the impact you want to have on other people. Impact is often confused with having a vision. I.e. “I want everyone in the world to have been cured of cancer by 2050,” or “I want us to have terraformed Mars by 2075.”
Can you please be specific as to who will begin this movement? Who will benefit from it first?
Impact Is Bullshit, If You Don’t Define It
"I want to change the world!” is what I’ve heard from many founders, but when they clarify how they've changed the world, we describe things that cause shifts in market condition: New software products. Storefront businesses. Physical products. Websites that sell t-shirts and posters. A service that brings you candy. Things things things. All too often, the answer is the thing, how the thing is going to shift a market from a capital or resources perspective. The “what,” the “solution”—this is the first problem to be solved.
I'm not against wanting to have an impact, or having an epic vision of changing the world. Having vision is crucial to a leader's success. It’s healthy to have aspirations. However, I don’t confuse a vision, which is often about the more abstract effects we’ll have on society on large, with the tangible influence a business can have in the here and now on a particular group of people.
This doesn’t require an MBA or fancy spreadsheets, at first. You need to visualize what you believe your influence on a particular group of people, starting from your perspective. Then you're going to discover if your point of view is true, based on what they truly need.
Show Us What You Mean
One of my favorite tools to help visualize potential impact is the "Ripple Effect" activity that's in frog's Collective Action Toolkit (CAT). I've done activities like these with everyone from lifelong entrepreneurs to high school students, and they always help align everyone around an approachable definition of what impact their efforts could potentially accomplish.
The "Ripple Effect" activity forces you to visualize, with the group of people that you're creating a business with, the net change that you want to see on particular groups of people. The activity forces people to go from the fuzzy, abstract aspirations you've got about world-changing ideas, to creating a theory around who you believe your first focused audience might be for a set of technology capabilities. You can keep doing this activity as you learn more and more about the people you believe your business will serve, and what they need from you. This can be tested.
You Are Nothing Without Your Ecosystem
Creating a startup or a business can feel like you’re in a hermetic box. It’s just you, intently focused on making something and getting into the right people’s hands, and those people responding back in kind. But you can’t hide in a box, make a thing, and unleash it on the world without knowing who’s part of your ecosystem. You’re part of a community that’s going to support and enrich your business over time.
If you know the impact you want to have on a particular group of people, you need to align it to your customers, partners, competitors, friends, family, professional networks, “coopetition,” the government, and so forth. An activity I do with startups, often following "Ripple Effect," is the "Rings of Connection" activity from the CAT. This activity forces people to visualize the people and the entities—other businesses, partners, competition, supporting organizations, governments—that will support your efforts and help you achieve your intended impact.
You don't just do this activity once. Your view of the ecosystem is constantly changing, based on how your business acts in the world. Once you’ve determined who’s part of your ecosystem, take a little time every few weeks to update this picture, based on what you’ve discovered. Are there entities who should (or could) be added? Taken away? Get it out of your head and in a place where you can keep track.
Know What You Don’t Want to Happen
When starting a business, many entrepreneurs focus on the net positive effect they want to have on the people in the world. I encourage entrepreneurs to also do the opposite: write out what you don’t want to have happen as a result of your business activities. If those types of effects happen, whether through accident or explicit intention on the part of yourself or other partners, immediately step outside the situation and consider what other options are possible to fix the situation. Consider this your preparation for worst-case scenarios that come along, as well as a way to qualify the kinds of sustainability effects you want your business to avoid.
The next post in this series will be about creating customer value.
* For those not versant in the startup lingo, “runway” is how much time you have left until the plug gets pulled on how these resources are going to be utilized, from laying off employees to having to shutter or sell the business. The concept of a “runway” is a literal embodiment of how much time there is to make a business sustainable. There's a reason why startups get beat up when they hire tons of people to make something that turns out to be trivial in the eyes of customers: it is risking using up much of the runway.
** Once a business is profitable and free of major debts, new runways can be laid for new products or ventures as part of their portfolio.
***That is, until there’s a version of The Sims for startupland, and then we’d be playing at businesses rather than sweating making them.